Airlines India, Indian Airlines

Jet Airways has announced a daily flight from Kolkata to Port Blair from 11th November 2006. This is going to be the first foreign flight from kolkata. Additionally the airline will also commence a daily flight to Bangkok from Delhi from the same date. For the Kolkata Port Blair flight, Jet Airlines will keep four aircrafts of its fleet at Kolkata.

Presently Jet Airways’ 17 percent revenue comes from international operations and 83 percent from domestic operations. The airline is aiming at a 50 percent revenue from international operations as the competition in the domestic market is getting stiffer. Jet is already flying to Britain, Clolombo, Kuala Lumpur, Kathmandu and Singapore. Besides, the airline has applied for approval to fly in United States and the airline is planning to add more destinations like Canada, China, South Africa, etc. to its list. The margins on international flights are better than domestic flights. The airline is already trying to cut down its fixed costs and come out profitable in the next financial year. With increase in international operations the airline is expecting to boos its revenues and will be able to thrive in the competitive domestic market.

Air Deccan has said it will stop flying unprofitable routes, as it seeks to come into the black by 2008. The Bangalore-based budget airline aims to carry 80 lakh passengers in 2007, compared with 45 lakh this year, and aims to break even on as many routes as possible by cutting operation costs. It has not indicated which routes will be affected by the plan.

Air Deccan, Jet Airways, Spicejet, Kingfisher Airlines and other private airlines are facing losses as a result of increasing competition, which is squeezing their margins. Air Deccan made a loss of Rs341 crore ($74 million) in the 15 months ending June 2006. Indian private carriers will probably make a combined loss of Rs1,125 crore ($250 million) this year and next, as they cut fares to as low as 1 rupee to maximise capacity utilisation.
Redeploying excess capacity and containing costs by utilising aircraft for longer hours could help Air Deccan and other budget airlines emerge from losses. Air Deccan is India’s second-biggest airline by market share behind Jet Airways.

The airline recently sold and leased back two Airbus SAS planes and three spare engines to balance its books. The company will consider similar deals for more planes. Air Deccan has 92 planes on order, valued at Rs 17,000 crore ($3.8 billion), to be delivered by 2012, most from Airbus. The airline has postponed a plan to start overseas routes in a joint venture in Sri Lanka, to focus on the turnaround.

The airline today announced a Rs675 crore ($150 million) 10-year maintenance agreement with Lufthansa Technik to support its fleet of 14 Airbus planes. Lufthansa Technik and its Indian subsidiary One Stop Airline MRO Support will independently serve the fleet of 60 Airbus A320 airplanes with spares at the carrier’s hub, Bangalore, Air Deccan and Lufthansa said in a joint press release. Lufthansa Technik will set up a regional pool of spares in India because of increasing demand in South Asian countries.

Will the no frills Air India Express, which will commence its first international flight between Mangalore-Dubai on Tuesday, affect the prospects of airlines ferrying passengers between Mangalore-Mumbai? Will this development benefit passengers in terms of air fares?

Though the Dubai, Sharjah bound passenger traffic constitutes as much as 50 per cent of the total traffic of all airlines from here to Mumbai, the effect may not be pronounced in the initial stage, says Nagesh Shetty, area marketing manager, Indian here.

“In case the frequency of Air India Express flights is increased from the present three times a week to daily, the effect may be much more pronounced,” asserts Shetty.

But other airline operators do not seem to toe the line. “It is a hype which may not last for long,” says Pramod Nair, station manager of Jet Airways here. Nair said though there is no argument that it will wean away the low cost passenger traffic, which may constitute 20 per cent, the passengers who are accustomed to first class/business class will still prefer the slightly inconvenient Mumbai or Bangalore route.

Nagesh Shetty says this development will affect Indian also as 60 per cent of the traffic is Gulf bound. “It can be offset by the development the region will witness in a couple of years,’’ he said, pointing out at the IT Special Economic Zone (SEZ) and the Coastal SEZ projects, which are going to boost the overall economy of the region.

Sudhir Bhat, senior sales executive, IA, adds that though the traffic pertaining to Dubai, Sharjah sectors will see a drop, there are other sectors like Muscat, Kuwait, Bahrain which hold promise. Incidentally, sources says that Indian may also commence its flights to Dubai from here shortly.

Regarding the fares, Nair says the airlines are offering the lowest fare as of now and he fails to see a further drop in the rates. Shetty also agrees that the fares have hit rock bottom and the airline companies are just breaking even with sub Rs 3,200 fares on offer now to Mumbai.

Shetty sees tremendous opportunities for Mangalore due to the international flights arriving here. “Some medical professionals are planning to open up consultancy services in the Gulf. Also medical tourism can see a boost here,” Shetty asserts, adding that education sector will boom as people may send their wards here directly than getting them educated in the Gulf.

MEET THE FIRST PASSENGERS

Mangalore: Only two politicians will be on the first international flight, which will take off to Dubai at 9 pm from the Bajpe airport here on Tuesday.

BJP state president D V Sadananda Gowda and Surathkal MLA Krishna J Palemar will fly to Dubai and return on October 7. Palemar said he was happy that he was one of the first passengers to be on the inaugural flight.

Among those who will greet the inaugural flight are Union minister of state for civil aviation Praful Patel, Union minister Oscar Fernandes, Chief Minister H D Kumaraswamy, deputy CM B S Yediyurappa, V Thulsidas, chairman and MD, Air India, K Ramalingam, chairman, Airports Authority of India, K Rahman Khan, deputy chairman, rajya Sabha, Union minister of State for planning M V Rajashekaran, Union minister of state for transport K H Muniyappa. Also Patel will lay the foundation stone for the integrated terminal building of the airport on the same day.

M T Alva, officer customer services, Air India, who also will be on the flight, said that though the capacity of Boeing 737-800 is 185 seats, only 165 passengers will be there on the arrival flight and 174 on departure. Alva said this precaution was taken as the pay load of the airport was not ascertained as yet.

Meeting with Praful Patel was inconclusive mainly due to different airline pricing objectives

With mounting losses of the airlines mainly due to surging prices of aviation turbine fuel (ATF) and overcapacity, the aviation industry is tightening its belt after the meeting with Praful Patel, Civil Aviation Minister. The Minister assured all present that he would take the matter up to the Petroleum Minister and the Finance Minister.

Though the country’s largest low-cost airline has expansion plans, it has reported a loss of Rs1.10bn between April and June this year. Warwick Brady, COO, Air Deccan said remedial measures include “rationalizing some routes” and retracing “unprofitable capacity.” More India airways are poised to follow suit.

The meeting however was inconclusive, mainly due to highly distinctive views of Jet Airways and Kingfisher on one side and Air Deccan and Spice Jet on the other. While the former team harped on the requirement of an industry association that would ensure not too much price cuts, the later stood firm on their ground of aggressive price tactics; but the match was a draw and no conclusion was arrived at.

“Everyone has to find a way of profitable growth,” said Ajay Singh, Director, Spice Jet and eventually there was no consensus on the formation of an industry association.

Capt. G R Gopinath, CEO of Air Deccan, said, “These fat cats are urging the government to control price, discipline the LCCs and put up entry barriers for new players. Fortunately for us, the government has refused to do this.”

The point made by the Captain is that low-cost airlines are going to make relentless efforts to continue to reduce costs by flying more number of hours with higher number of seats. By migrating more customers to the Internet, Gopinath said, the airline aims to cut distribution costs by almost 20%.

On the other side, Vishwapati Trivedi, Chairman and Managing Director, Indian, said that even if the anticipated cut in ATF prices took place on October 1, the airline was unlikely to immediately pass it on to the consumer. This is because the airline would like to eye the trend in ATF prices for at least two to three months.

Taking on the budget carriers, full-service airlines today demanded that the government should regulate prices and suggested that higher entry barriers for new players could be a way out of the present financial cauldron facing the industry.

The move, however, was vehemently opposed by budget carriers, which stated that the excess capacity was only a temporary phenomenon and would pass as the market grew on lower fares.

The government, which called a meeting with airlines to work out a method to solve the sector’s financial problems, told the carriers that it would not interfere in pricing, which will be left to market forces.

The budget carriers are Air Deccan, SpiceJet and GoAir, while the full-service carriers include Jet Airways, Indian and Kingfisher.

There was a lot of concern over capacity building in certain routes and this was seen as a major reason for a large number of airlines bleeding, said Ajay Singh, director, SpiceJet, who attended today’s meeting. Singh also said the carriers raised questions on rationalisation of fares.

According to industry estimates, the domestic carriers together are expected to make staggering losses of Rs 2,500 crore in 2006-07.

The meeting was attended by Jet Airways Chairman Naresh Goyal, Kingfisher Chairman Vijay Mallya, Air Deccan Managing Director GR Gopinath, SpiceJet’s Singh, Paramount Airways Managing Director M Thyagarajan, and Air Sahara President Alok Sharma.

The government, on its part, is planning a slew of steps to bring financial health back into the sector. The government is putting stiff conditions on the entry of new airlines that want to fly in the domestic skies.

These include enhancement of the minimum paid-up equity capital requirement, prior approval of business and fleet plans before permission is given to fly and directly linking an increase in fleet size with a commensurate increase in the paid-up equity capital norms laid out for carriers.

In order to ensure that the financial health of a carrier does not lead to bankruptcy, and also to curtail any example of predatory pricing by carriers, the government has proposed that it will review the business plans as well as the financials of the airlines every quarter and suggest corrective measures if required. This was a model the government said it was borrowing from the US.

The paid-up equity capital norm for new carriers will be hiked from the current Rs 30 crore to Rs 50 crore. For every five new aircraft inducted in a fleet, the airline’s paid-up equity capital will be enhanced by Rs 20 crore.

So for instance, a carrier that increases its fleet strength from five (which is the minimum needed for starting operations) will have to enhance its paid-up equity capital to Rs 70 crore if it has 10 aircraft.

In case it starts operation with 10 aircraft, it also has to pay the same amount. Earlier there were no such norms.

According to Civil Aviation Minister Praful Patel, the government has decided to step in to ensure that the Indian carriers remain in good financial health.

“There is massive growth, but at the same time, there are losses, too. We want to ensure better business conditions. The government does not want a repeat of 1991,” said Patel. In 1991, a number of private airlines went belly up due to bad business plans and mounting losses.

New applications to start airlines will have to wait for some more time for licences, as the government wants to evaluate the business viability of these companies before awarding them permission to fly. This has been done to ensure that only sound players enter the sector.

The government came under fire from the private players on higher jet fuel prices. The airlines had pointed out to the government that while prices were high, oil marketing companies passed on the increased price to the carriers, but no such step was taken when fuel prices were down.

According to airlines, the civil aviation minister has assured the carriers that the civil aviation ministry is taking up this issue with the oil and finance ministries. The contribution of jet fuel prices to a carrier’s costs is about 40 per cent.

In addition, the civil aviation ministry is also proposing a tax package to the finance ministry, including long-term waiver of aircraft leasing tax, financial transaction taxes and abolition of services taxes.